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Tribal Business Owes Oklahoma $47 Million in Smokes Revenue

An Oklahoma court ordered Native Wholesale Supply to disgorge more than $47 million in gross proceeds received for the sale of Seneca cigarettes.

According to Susan E. Huntsman, Director at Crowe & Dunlevy and Vice-Chair of the firm's Indian Law & Gaming Practice Group, the Oklahoma Supreme Court has recently decided what may well be the last case in a decade-old dispute regarding nation-to-nation tribal cigarette sales.

In 1980, the Supreme Court ruled that a state could impose taxes on cigarettes purchased and sales taxes on cigarettes purchased on tribal land by non-members of the tribe. In Washington v. Confederated Tribes of Colville Indian Reservation, the high court also allowed the state to seize contraband cigarette shipments en route to the tribes.

Later tribe-to-state litigation increased after the massive settlement between several states and the tobacco companies over Medicaid costs in 1998—the measure allowed the state to seek funds under the Master Settlement Agreement (MSA).

In a release by Crowe & Dunlevy, “In the latest round of litigation, the district court granted judgment to Oklahoma, ordering [Native Wholesale Supply] to disgorge more than $47 million in gross proceeds received for the sale of Seneca cigarettes within the state—despite the fact that the cigarettes had been stamped “for reservation sales only.” NWS argued that this proved its intent that the cigarettes would only be sold on Native American reservations. The court rejected this argument as “simply disingenuous.”

According to Huntsman, “this may be the end of the latest battle in the long-fought war over tribal cigarette sales.”

In an interview with Huntsman, ICTMN asked about this latest ruling, the history of cigarette sales and importing by tribes and what it means today.

Mrs. Huntsman, as you said, “The Oklahoma Supreme Court recently decided what may well be the last case in a decade-old dispute regarding nation-to-nation tribal cigarette sales.”

Can you explain what it means to not only Oklahoma, but all other tribes across the nation?

While this decision applies only to sales in Oklahoma, it has ramifications across Indian country. Native Wholesale Supply was a Sac & Fox company owned by a member of the Seneca Nation. This tribal company attempted to import Seneca cigarettes from Canada to sell to other tribes or tribally owned entities. States, which have benefitted so heavily from the large cigarette company settlements and taxes, have long felt threatened by tribal cigarette sales and have cracked down on anything they see as threatening these revenues. Tribes, meanwhile, have come under more and more pressure to increase their payments to the state on cigarette sales, with a resulting loss in tribal revenues.

More broadly, tribes are constantly vexed by the double taxation quandary – tribes would like to exercise their sovereignty to tax economic activity on tribal land, but often the states already tax the same activity if non-Indians are involved. This leaves tribes at an economic disadvantage to the states in one of the most basic methods of raising governmental revenues. Some had tried to solve this problem by developing a tribe-to-tribe economy that bypassed the states. Companies like Native Wholesale Supply were a part of this trend.

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This case, and those leading up to it, have dealt a blow to that process.

What are some of the most memorable/volatile moments of this conflict?

The most volatile moments of this conflict are now several years old, but quite memorable. In 2009, the Oklahoma Highway Patrol, under the direction of the Tax Commission, stopped multiple Muscogee (Creek) Nation trucks, claiming various purported traffic violations. Like characters from an old-time prohibition film, the officers broke the locks on the trucks and Tax Commission officials swooped in to seize the contraband cigarettes. At least, it seemed that way until the third truck ... which contained mundane plumbing supplies. Presumably, that stop went straight to the blooper reel.

RELATED: State Law Challenges Tribal Autonomy

What do tribes need to be aware of from this point forward?

Tribes should beware of any revenue-raising plan that appears to allow the tribe to avoid collecting sales tax from non-Indians who purchase products from tribal retailers. This applies even if the tribe has imported the products from other tribal wholesalers. Any such plan should be carefully reviewed with legal counsel before implementation.

How does this decision affect “Joe Citizen”?

The average citizen will eventually see increased costs for cigarettes or other products purchased on Indian country, as well as less selection.

Is there anything else the public would benefit from knowing?

In these times of increasing stress on the public fisc, governments at all levels are looking to close what they see as “loopholes” to the payment of taxes – whether on shipments from your favorite online retailer or purchases from your preferred tribal vendor. There is no reason to think the states are going to back down anytime soon.